Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.15% (annual coupon payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard &...


Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.15% (annual coupon payments) and a face value of $1,000. Andrew believes it<br>can get a rating of A from Standard & Poor's. However, due to recent financial difficulties at the company, Standard & Poor's is warning that it may downgrade<br>Andrew Industries' bonds to BBB. Yields on A-rated, long-term bonds are currently 6.59%, and yields on BBB-rated bonds are 6.84%.<br>a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue?<br>b. What will be the price of the bond if it is downgraded?<br>

Extracted text: Andrew Industries is contemplating issuing a 30-year bond with a coupon rate of 7.15% (annual coupon payments) and a face value of $1,000. Andrew believes it can get a rating of A from Standard & Poor's. However, due to recent financial difficulties at the company, Standard & Poor's is warning that it may downgrade Andrew Industries' bonds to BBB. Yields on A-rated, long-term bonds are currently 6.59%, and yields on BBB-rated bonds are 6.84%. a. What is the price of the bond if Andrew Industries maintains the A rating for the bond issue? b. What will be the price of the bond if it is downgraded?

Jun 05, 2022
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